Guest Post: Snapback - Stockton, Calif. And All The Cities To Follow

Government promises to public employees have created "zero-risk" Wonderlands protected from the market forces of risk and consequence. These islands of privilege are snapping back to join the real economy.

Every government entity that reckoned it was moated from the market economy will be snapped back to "discover" risk and consequence. Let's lay out the dynamic:

1. Every government can only spend what its economy generates in surplus.

2. Every government transfers risk and consequence from itself, its employees and its favored vested interests to the citizenry and taxpayers.

3. Every government collects and distributes the surplus of its private sector to its employees, favored constituencies and vested interests.

4. Since the government (State) promises guaranteed salaries, benefits and entitlements to its employees and favored constituencies, these individuals believe they are living in a risk-free Wonderland that is completely protected from the market economy.

5. Risk cannot be repealed or eliminated, it can only be masked or transferred to others.

6. The Federal government and the Federal Reserve have pursued a policy of inflating serial speculative credit-based bubbles.

7. These bubbles inflated assets, profits and taxes, creating the illusion that blow-off speculative tops were "the new normal."

9. Once the bubble deflates, the capital is lost or trapped in illiquid malinvestments.

10. As a direct result of the dot-com bubble, Stockton's tax revenues (general fund) leaped to $139 million in 2001. As a direct consequence of the housing bubble, it jumped to $186 million in 2007.

11. This "new normal" encouraged the belief that the stock market would double or triple every decade into the future, generating 8%+ annual returns for public union employee pension funds.

12. The city government granted employees open-ended guarantees of lifetime healthcare coverage.

13. This meant that there was no limit on the cost of each employee's benefits.

14. As noted here many times, healthcare costs rise by 7%-10% every year, even as the economy which supports healthcare grows by 2% on average.

15. Healthcare alone will bankrupt the nation, and the bankruptcy of entities that promised open-ended healthcare is merely one manifestation of the coming bankruptcy of the entire sickcare/entitlement Status Quo.

16. Once the stock market reverts to the mean and is revalued to the "new normal" of global recession and low earnings growth, it will decline by 40% or more and yields will remain around 2%.

17. Pension funds earning 2% at best based on expectations of permanent 8% returns cannot sustainably pay the benefits promised.

18. If the city attempts to make up the shortfall annually, the services provided to the citizenry will be gutted. The risk and consequence of malinvestment and favoritism has been offloaded onto the citizens while those protected by the government moat live "risk-free" lives of guaranteed pensions and benefits.

19. The public-employee pension and healthcare benefits were separated from the market economy with this government guarantee: regardless of what happens in the real economy, you will be paid pensions and benefits that have zero exposure to the market economy and private-sector pensions/benefits.

20. In effect, the government has placed its employees and vested interests in a moated "risk-free" zone outside the market economy. The risk that is distributed to all participants in an open market (i.e. a democracy) is transferred to the citizens and taxpayers.

21. Any government that siphons off an increasing share of its taxpayers' disposable income (to distribute to the privileged few) in return for declining services will eventually be overthrown by the citizenry and taxpayers who must bear the full consequences of the city's mismanagement of their capital and income.

22. Every city, county and state in the U.S. which has secured a risk-free wonderland for its favored few will "snap back" into the real economy and face the discipline of the credit market and the "discovery" of price and value.

23. Risk cannot be eliminated by government mandate, it can only be transferred to others. No government entity can maintain a "risk-free" fortress outside the market forever. The moat around Wonderland will be drained or filled, regardless of what promises were made.

24. Government has no mechanism to transparently price risk, value and return on investment. The market will "discover" all these and re-set government services and salaries accordingly.

It's all about "public-private" initiatives. This is the compromise that we're all looking for. Successful public-private initiatives include:

1. The emergency financing of AIG and General Motors

2. Government financing of green technologies

3. Public hiring of construction contractors to build roads and bridges

4. Congress working with health insurance companies to make sure that everyone gets good quality healthcare

5. The CIA working with companies like GOOGLE to track and monitor potential domestic terrorists

The thing I love about 'PP' initiatives is they appeal to people from all parts of the political spectrum. Let's stop arguing and AGREE on something for once. What kind of public-private schemes do YOU want to see? I want to hear YOUR ideas.

I can hardly await the embarrassed silence of Joe Weisenthal, wanna-be-professional-fertilzer-spreader and proxist mouthpiece of TPTB, just like his hero, Paul Krugman, when Meredith Whitney proves to be correct but merely early on her call (just as Michael Burry was on his 'Big Short' on MBS) regarding the mass bankrupties of cities, townships and villages from coast to coast (their revenue is still plunging even after 5.2 trillion in fiat conjuring in just 4 years, and another 7 trillion in fiatski pledges to back the loans of others to whom they may actully belong; grand total thus far in direct conjuring creation of fiat = 12+ trillion in 4 years).

Agreed. Joe Weisenthal is one of the more pathetic weasels on the web. Someone, somewhere apparently convinced him he was a professional journalist and not low paid employee of a cheesy, sensationalist clickbait blog. Love the shades though, duuuude.

If you're going to suck up to TPTB at least do it for the money. What's his excuse exactly?

Private entities that merge with Government arms (BTW, it's called Socialism, which always leads to Communism) have a serious problem. These entities have a Devil as their partners, one that is guaranteed to devour them eventually.

You can play around with a tame wild bear or swim with a great white shark for awhile, but eventually they get hungry and you get eaten, law of the jungle. The Government is force, nothing less.

Private entities that merge with Government arms (BTW, it's called Socialism, which always leads to Communism) have a serious problem.

Our "private entities" which manufacture weapons merged with Government back in the 40s, but it hasn't led to Communism yet. Are you suggesting government should stop propping up Boeing/Grumman/Xe/etc?

Sewage sludge, or “biosolids,” is the viscous brown chemical byproduct of municipal wastewater treatment systems. According to Public Justice, it contains bacteria, viruses, pathogens, heavy metals, prescription drugs, and toxic chemicals from both domestic and industrial wastes. The U.S. generates over seven million tons of sludge per year, mostly from plants in heavily urbanized areas, and about half of that is dumped on land as fertilizer.

[...]why don't you go after the Carlyle-Synagro group? You can convict underlings like [Synagro executive] James Rosendall or [Synagro consultant] Rayford Jackson. They're nothing. Deal with people on the board, like the Bush family, and then see where you get.

The Carlyle Group's founders, who include CIA veteran Frank Carlucci and government advisor David Rubinstein, have had intimate ties with every presidential administration since that of Richard Nixon, Briody says in his book, the only one published on Carlyle.

The company includes both former Bush presidents in its ranks, as well as many other retired U.S. government officials. From Britain to Saudi Arabia to the Philippines, numerous world leaders also occupy its upper eschelons.

spreadin' that "Texas gold" all over the place. . .welfare queens, eh?

Been here over 30 years and I still maintain Stockton's a great place to be from. We're adjacent to some of the most fertile soil on the earth and at sea level, have paradise conditions for agriculture. Dopey politicos forget the connection food has on maintaining life and if our bankruptcy can shed the light back on the necessary basic structures, i.e. sound currency, prudent lending/borrowing and trust used to build a vibrant society on once again, then so be it.

Bankruptcy is not the problem. It is the solution. It's nothing more than fulfilling legal obligations in a lawful and systematic fashion that draws an end to the control fraud conducted by the unholy alliance of politicians, financiers and their henchmen.

Stockton should be compensated for the fraud that has happened. A corporate clawback, then the fraudsters at the top who've received billions in compensation and bonuses should have asset ceased pending trial.